If you’re a Veteran and a first-time buyer searching for a house and want to use your VA Home Loan benefit, you should know that the process is different from taking out a conventional mortgage loan – it is far more relaxed.
Although VA Home Loan programs are among the best home-lending options, it’s unfortunate that far too many Veterans don’t utilize them. Maybe they’re simply unfamiliar with the VA Loan benefits or have the misconception that they involve a tangled wad of red tape.
You’ll be glad to know that familiarizing yourself with the general details of the VA Loan benefit doesn’t mean slogging through endless pages of government doublespeak. Instead, you can take a look at these frequently asked questions about the advantages and requirements of VA Loans to get a good idea of why you should use your hard-won benefits. Our experienced and resolute loan officers at Aligned Mortgage will be happy to expand on any of these points and guide you through the exciting adventure of buying your family’s home.
Q: What are the primary advantages of using a VA Loan?
A: There are several primary advantages to VA Home Loans that simplify home buying for Veterans. They are as follows:
- No down payment required
- Low credit score accepted
- No private mortgage insurance (PMI)
- Higher debt-to-income ratio accepted
- Low interest rates
- Easy to refinance
- No penalty fee for early pay off of the loan
Q: Are VA Loans open to everyone who served in the military?
A: Although the VA guaranteed a record high of more than 1.44 million loans in fiscal 2021 – a 15 percent hike from the previous year – not every person who served in the military is eligible. There are specific criteria you must meet to qualify, and they include at least one of the following:
- Served 181 days of active service during peacetime
- Served 90 consecutive days of active service during wartime
- Served more than six years of service with the National Guard or Reserves or 90 days under Title 32, with at least 30 of those served consecutively
- As the spouse of a service member who lost their life in the line of duty or as the result of a service-connected disability
Q: What is “entitlement” when referring to VA Home Loans?
A: In simplest terms, the entitlement is the amount the Department of Veterans Affairs guarantees on a borrower’s loan. For instance, if you default on your loan, it is the maximum amount that your lender will recoup from the VA.
Q: What are the differences between full entitlement and reduced entitlement?
A: You should have full entitlement if you have never taken out a VA Loan. But if you had a VA Loan, sold the property, and paid off that loan in full, you should, once again, resume full entitlement status.
The amount of your entitlement lets you know the sum you can borrow without needing a down payment. Note that since January 2020, those with full entitlement using their VA Loan benefit don’t have a limit on how much they can borrow without a down payment. And for these borrowers, the VA guarantees up to 25 percent of the loan amount on any size loans. However, that doesn’t allow you to borrow all the money you want. The amount depends on how much your lender will qualify you for once they go over your income, debts, and credit history.
You may have a reduced entitlement if:
- You’re paying on a current VA Loan
- You paid your VA Loan in full but still own the property you used that loan for
- You’ve defaulted on a previous VA Loan
If you do have a reduced entitlement, you should know that it technically doesn’t limit your borrowing power. But if you exceed your entitlement, you’ll have to bring a down payment to the table because the VA will guarantee your loan only up to the conforming loan limit, minus the entitlement you’re using.
Q: How do I know how much entitlement I have?
A: Your Certificate of Eligibility (COE) is an invaluable document that proves you meet the service requirements to qualify for a VA Loan. It also contains an entitlement code that states your entitlement amount and specifies when you performed the service that entitles you to your VA Loan benefits.
The codes range from 01 to 11 and identify the time (era) you earned your entitlement or another cause that qualifies you for VA benefits. Most of these codes correspond with specific wartime or peacetime periods. For instance, the first entitlement code, 01, starts with World War II, and the list ends with code 11, which signifies eligibility earned by selected Reservists who meet the minimum requirements.
Q: Where can I get my Certificate of Eligibility (COE)?
A: That’s easy. The quickest way to obtain a copy of your COE is through your lender, and it’s the first order of duty when you are considering buying a house.
Q: Do all lenders have the same terms?
A: Well, no. It’s true that the Department of Veterans Affairs administers the VA Loan program; however, the loan terms, including interest rates, fees, and closing costs, are processed differently through local lenders depending on their individual goals and policies. That’s why shopping for the ideal lender when seeking a VA Loan is critical.
Q: How does a previous foreclosure or bankruptcy affect my ability to qualify for a VA Loan?
A: The news is all good because, generally, you can apply for a VA Loan after two years from the date of a foreclosure or bankruptcy. But always check with your lender for their specific policy.
Q: Are there any negatives to using a VA Home Loan?
A: Although it’s true that the VA Home Loan program offers Veterans and active-duty military personnel a smooth path to homeownership, there are a few factors that potential borrowers should be aware of. They include the following:
- The funding fee is a one-time user fee most borrowers pay to use the VA Home Loan. It doesn’t go to the lender; instead, it goes directly to the VA, and it is used to keep the program in good stead for future borrowers. You can pay the fee all at once at closing or by folding it into your loan. Note that some borrowers are exempt from paying the funding fee.
The Blue Water Navy Vietnam Veterans Act took effect on January 1, 2020, resulting in the VA funding fee rising to 2.30 percent for first-time borrowers and to 3.60 percent for those who have previously used a VA Home Loan. Those changes are expected to remain through 2022.
- Limitation on property types. For instance, you cannot get a VA Loan for vacant land. Instead, you must use the VA Loan for an existing dwelling, which has to be inspected and appraised.
- You can’t invest using a VA Home Loan. You can’t buy a rental property or a vacation home. You must use the home you buy with a VA Loan as your primary property.
As you can see, the advantages of using your VA Home Loan benefits far outweigh any minor drawbacks you might encounter. At Aligned Mortgage, you’ll find that our loan officers are eager to answer any questions you may have regarding your lending needs. So please don’t hesitate to contact us.